Rules for International Monetary Reform

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In
chapter 9 of my book, Money,
Bank Credit, and Economic Cycles
(pp. 789–803), I design
a process of transition toward the only world financial order that,
being fully compatible with the free-enterprise system, can eliminate
the financial crises and economic recessions that cyclically affect
the world’s economies. Such a proposal for international financial
reform is, of course, extremely relevant at this time, since the
disconcerted governments of Europe and America are planning a world
conference to reform the international monetary system in order
to avoid future financial and banking crises such as the one that
currently grips the entire Western world. As I explain in detail
over the nine chapters of my book, any future reform will fail as
miserably as past reforms unless it strikes at the very root of
the present problems and rests on the following principles:

  1. the reestablishment
    of a 100% reserve requirement on all bank demand deposits and
    equivalents;
  2. the elimination
    of central banks as lenders of last resort (which will be unnecessary
    if the first principle is applied, and harmful if they continue
    to act as financial central-planning agencies); and
  3. the privatization
    of the current, monopolistic, and fiduciary state-issued money
    and its replacement with a classic gold standard.

This radical,
definitive reform would essentially mark the culmination of the
1989 fall of the Berlin Wall and real socialism, since it would
mean the application of the same principles of liberalization and
private property to the only sphere – finance and banking –
that has until now remained mired in central planning (by "central"
banks), extreme interventionism (the fixing of interest rates, the
tangled web of government regulations), and state monopoly (legal-tender
laws, which require the acceptance of the current, state-issued
fiduciary money) – circumstances with disastrous consequences,
as we have seen.

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the rest of the article

January
22, 2009

Jess
Huerta de Soto, professor of economics at Rey Juan Carlos University
in Madrid, is Spain’s leading Austrian economist. As an author,
translator, publisher, and teacher, he also ranks among the world’s
most active ambassadors for classical liberalism. He is the author
of Money,
Bank Credit, and Economic Cycles
.

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